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Why you can expect further gains for ASX shares this quarter

ASX market bulls will be emboldened by predictions that equities will add to their strong gains from the June quarter.

History is on the side of the optimist. Whenever the S&P 500 Index (INDEXSP: .INX) records a big jump in the previous quarter, the market has always made gains in the following three months.

This may be specific to the US index, but given the correlation between the S&P 500 and the S&P/ASX 200 Index (Index:^AXJO), this bodes well for the ASX too.

September quarter looking strong

This trend was highlighted in a report by Keith Lerner, chief market strategist at SunTrust Private Wealth Management, according to Bloomberg.

He looked at the quarterly performance of the US benchmark since 1950. Whenever the S&P 500 rallied 15% to 22% in a quarter, it will rise again in the next quarter by an average of 8.4%. The index jumped 20% in the June quarter.

That’s reassuring as investors are fretting over what this quarter could bring. A resurging wave of COVID-19 infections around the world, geo-political tensions with China, the nail-biting August reporting season and the end of government wage subsidies will give us plenty to fret about.

Climbing the wall of worry

At least having history on our side will provide some comfort even though the next few months is thick with uncertainty.

Can the ASX 200 continue to build on gains even in this fog of war? The answer is “yes” as share markets have climbed walls of worry many times before.

It helps that stocks are the “least dirty shirts” in the drawer. The fundamentals for this asset class are better than most others, leading some market commentators to call stocks the new “safe haven” assets.

Why ASX shares can still outperform

I wouldn’t necessarily go that far, but I do believe equities will outperform the other major asset categories in FY21.

But this isn’t a call to indiscriminately buy the market. I think the relatively positive tailwinds for stocks need to be balanced with the multiple risk factors that are on the horizon.

In such an environment, quality defensive stocks with a successful management track record of delivering value to shareholders will be favoured.

ASX stocks to watch

I am not passing judgement on the record breaking Afterpay Ltd (ASX: APT) share price, but it doesn’t fit into what I am referring to.

I prefer stocks that are profitable and have businesses that are well placed to remain so even if the headwinds build.

Some of my favourite picks as we head into the next phase of the coronavirus crisis include the BHP Group Ltd (ASX: BHP) share price, Ansell Limited (ASX: ANN) share price and Austal Limited (ASX: ASB) share price – just to name a few.

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Brendon Lau owns shares of Ansell Ltd., Austal Limited, and BHP Billiton Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Austal Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Ansell Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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